There Is a 30 Percent Probability That a Particular Stock

question 81

Multiple Choice

There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent.What is the risk-free rate if the risk premium on the stock is 8.60 percent?

• A)4.20 percent
• B)4.80 percent
• C)5.20 percent
• D)5.40 percent
• E)5.80 percent

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Definitions:

Deterministic

The philosophical concept that suggests all events, including moral choices, are completely determined by previously existing causes.

Neurotic Anxiety

A type of anxiety stemming from unconscious conflicts that threaten to surface, often manifesting as irrational fears or behaviors.

Id

In psychoanalytic theory, the part of the mind that is the source of instinctive impulses that seek satisfaction in accordance with the pleasure principle.

Superego

The aspect of personality that acts as a moral center, guiding behavior with internalized ideals, values, and standards for right and wrong.